BILL ANALYSIS �
AB 2409
Page 1
Date of Hearing: April 17, 2012
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
AB 2409 (Allen) - As Amended: March 29, 2012
SUBJECT : Energy efficiency
SUMMARY : Requires the California Energy Commission (CEC), in
collaboration with the Public Utilities Commission (CPUC), the
Treasurer's Office, the State Air Resources Board, and the
California Infrastructure and Economic Development Bank, to
review and develop emerging technology financing models for
purposes of helping California meet its clean technology goals.
At a minimum, the CEC must consider the following models:
1)Long-term finance options, including, but not limited to,
establishing, facilitating, or improving the ability to issue
tax exempt bonds, private activity bonds, or private
investment bonds;
2)Potential immediate and long-term financing capabilities for
various financing models;
3)Potential for implementing shared savings agreements;
4)Potential for developing a market dedicated to extracting all
of the financial values for energy efficiencies and energy
management services;
5)Potential market development for energy efficiency financing
for state infrastructure, such as building retrofits, as well
as purchases of high-efficiency alternatives for equipment
that consume energy; and
6)Potential market development for residential and business
retrofits, as well as purchases of high-efficiency
alternatives for equipment that consumes energy.
EXISTING LAW :
1)Designates the CEC as the state's primary energy policy and
planning agency.
AB 2409
Page 2
2)Directs the CEC to undertake a continuous assessment of trends
in the consumption of electrical energy and other forms of
energy and analyze the social, economic and environmental
consequences of those trends; carry out, or cause to carry
out, energy conservation measures; and recommend to the
Governor and Legislature new and expanded energy conservation
measures as required to meet the objectives of existing law.
3)Authorizes and directs the CEC to collect from electrical
utilities, gas utilities, and fuel producers and wholesalers
and other sources forecasts of future supplies and consumption
of all forms of energy.
4)Authorizes and directs the CEC to carry out, or cause to carry
out, under contract or other arrangements, research and
development into alternative sources of energy, improvements
in energy generation, transmission, and siting, fuel
substitution, and other topics related to energy supply,
demand, public safety, ecology, and conservation which are of
particular statewide importance.
5)Authorizes and directs the CEC to adopt standards, except for
air and water, to be met in designing or operating facilities
to safeguard public health and safety, even if those standards
are more stringent than those adopted by local, regional, or
other state agencies, or by federal agency if permitted by
federal law.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's purpose: According to the author, "AB 2409 simply
requests all of the major state agencies currently involved in
energy efficiency financing and program management such as the
California Energy Commission, California Public Utilities
Commission, State Treasurer's Office, the State Air Resources
Board, and the California Infrastructure and Economic
Development Bank to collaboratively review emerging financial
markets and models that have minimal or no public or
investor-owned utility financial investment in an effort to
procure the capital investment needed to achieve California's
aggressive energy efficiency goals.
California has one of the most aggressive energy efficiency
AB 2409
Page 3
goals in the nation. For example, by 2015, the state wants to
reduce energy consumption in existing homes and local
governments by 20%. By 2020, the state has set goals for
ensuring all new houses constructed in California will reach
"zero net energy" (ZNE) performance, reducing energy
consumption of existing homes and local governments by 40%,
making energy efficiency certification and benchmarking
standard practice for businesses, which represent 80% of the
industrial sector's energy use, and reducing agricultural
sector production intensity by 15% from 2008 levels for
non-renewable energy. However, to meet many of these
aggressive goals, California will need to acquire
approximately $4 billion in capital investment per year,
nearly double current investments. Therefore, identifying and
procuring cost-effective financing to must increase quickly
and exponentially to achieve these goals.
"Aggressively and collaboratively exploring these existing
financing models and, if needed, redesigning them to fit
California's needs using the expertise and experience already
present in the multitude of state agencies implementing energy
efficiency financing and programs is the only practical
mechanism for acquiring the financial capital needed to
achieve California's efficiency reductions goals, emissions
reductions as mandated by AB 32, and to put thousands of
Californians back to work."
2)Emerging public finance models for energy efficiency : The
following is a sample of emerging public finance models being
discussed or deployed in jurisdictions around the U.S.
a) The Clean Energy Development Administration (CEDA) or
the Green Bank : The concept of the Green Bank is to
establish an independent, government-sponsored bank to
support clean technology financing through loan guarantees,
credit enhancements, debt instruments, and equity. In
practice, the bank would partner with private financial
institutions that would not expose themselves to the clean
technology sector because of perceived risk. Using
guarantees, letters of credit and other credit enhancement
tools, the Green Bank would provide private investors with
the security they need to make clean technology
investments.
b) Clean Energy Victory Bonds or Green Bonds : The Victory
AB 2409
Page 4
Bond concept was used during World War II when the federal
government sold bonds to the public to finance the war
effort. Green Bonds use a similar model in that they use
public bonds to raise capital for purposes of financing
clean energy projects. In 2008, The World Bank (Bank), in
partnership with Scandinavia, issued $350 million in Green
Bonds denominated in Swedish Kronor to fund carbon emission
reduction projects in the third world. In 2009, the Bank
issued its first U.S. dollar denominated bond which was
subsequently purchased by the California State Treasury.
Similarly, the European Investment Bank issued ?1 billion
euros worth of "Climate Awareness Bonds" in 2007 to finance
renewable energy and energy efficiency project lending.
c) General Federal Bonds : The Federal government offers
several flavors of bonds that award bondholders tax credits
partially or fully in lieu of interest payments. Two
classes of these bonds, Clean Renewable Energy Bonds
(CREBs) and Qualified Energy Conservation Bonds (QECBs),
have been used with considerable success to drive clean
technology investments. CREBs were created by the Energy
Policy Act of 2005 to finance certain renewable energy and
clean coal facilities. To date, over 900 clean-energy
projects have been financed with $1.2 billion in CREB
proceeds. QECBs were launched in 2008 and are extremely
versatile instruments that can be used to fund projects
ranging from green-building technologies and mass-transit
improvements, to conversion of agricultural wastes and even
marketing campaigns to promote energy efficiency.
d) Federal Loan Guarantees : Established in 2005, the U.S.
Department of Energy's Loan Guarantee Program guarantees
loans for a range of clean-energy related projects. The
program has come under considerable criticism given its
decision to fund Solyndra, a California-based developer of
thin-film solar products that has since declared
bankruptcy.
e) City Funds : A relatively new model, U.S.
city-administered loan funds have been emerging across the
country, including Berkeley, Portland, Cambridge, and
Boulder. Under this model, a city raises capital through
municipal bond issuances and then uses the capital to offer
moderate-sized loans (between $5000 and $25,000) to
homeowners for purposes of financing home energy
AB 2409
Page 5
improvement upgrades.
These are just a few financing models that AB 2409 envisions
CEC exploring, in concert with other agencies, with the goal
of identifying the models that are best suited for California.
1)Relevant State Reports on Energy Efficiency and Financing : In
2005, the CEC released a report on potential energy efficiency
measures that could be adopted in existing commercial and
residential buildings. The report found that cost effective
energy efficiency measures could reduce statewide consumption
of electricity and natural gas by 15 to 18%.
In 2009, the State Legislature enacted AB 758 (Chapter 470,
Statutes of 2009) directing the CPUC to investigate the
ability of electric and gas utilities to provide energy
efficiency financing options to their customers. In its
report to the Legislature, the CPUC concluded that:
"Achieving levels of efficiency consistent with California's
goals will require a capital investment of approximately $4
billion per year. However, current levels of energy
efficiency investment in California appear to be approximately
one-half that amount. Consequently, the rate of adoption of
energy efficiency technologies and the capital to finance that
up-take, must increase for California to achieve its goals.
Along with other market solution mechanisms, appropriate
cost-effective financing for energy efficiency can play a
significant role in achieving these investment goals."
2)Primary clean technology financing asset classes : Investments
in the clean energy economy can be organized into four primary
categories: venture capital and private equity (VC/PE), public
markets, asset finance, and merger and acquisition activity
(M&A).
The VC/PE category represents all monies invested by venture
capital and private equity funds in the equity of private
companies engaged in the clean energy economy. The public
markets, on the other hand, captures all monies invested in
the equity (individual stocks) of publically traded companies
engaged in the clean energy economy. The third category,
asset finance, represents all monies invested in large-scale
renewable energy generation projects like wind and solar
farms. This category encompasses balance sheet investments
from corporations, and debt and equity financing. The fourth
AB 2409
Page 6
category, M&A, is distinct from the first three in that it
does not represent investments in new technologies, but rather
the transfer of existing technologies from one market actor to
another. Clean technology M&A is, however, an extremely
important indicator of market demand for clean technologies
and, by extension, directly drives the ability of private
equity and venture capital firms to sell their positions in
clean technology companies and generate returns for their
investors.
3)The clean technology financing landscape: California does not
have the public resources to independently finance the level
of energy efficiency projects required for the state to meet
its renewable energy goals. As such, California must
proactively lure investment capital from around the world. To
assess the ability of the state to do that, we must first
understand the clean technology investment landscape.
Investments in clean technologies reached a record high in
2011with $260 billion invested worldwide, a 5% increase
compared to 2010 and a fivefold increase over the $53.6
billion invested in 2004. Geographically, 2011 saw the
reemergence of the U.S. as the leader in clean technology
investments, moving past China for the first time since 2008,
according to an analysis by Bloomberg New Energy Finance.
At a regional scale, the U.S. secured $4.9 billion in clean
technology venture funding in 2011. This figure was down 4.5%
compared to 2010, but represented a 29% increase from 2009.
Among U.S. states, California continued to lead the nation in
attracting cleantech venture funding with $2.8 billion
secured. In the fourth quarter of 2011 alone, California
secured $629.5 million in venture funding across 26 deals,
representing 67% of all cleantech dollars invested in the U.S.
according to an analysis by Ernst & Young.
Similar to past years, the largest source of capital for clean
technology investments in 2011 came from asset finance, with
$145.6 billion invested, representing a 5% increase over 2010.
Of note, 2011 saw a 36% jump in solar investments in this
category with $136.6 billion invested, two times the level of
investments secured for wind projects, a category that saw a
17% drop in invested dollars with $74.9 billion invested in
2011.
AB 2409
Page 7
Some of the more notable projects receiving asset financing
dollars included the 288 Mega Watt (MW) Amrumbank West wind
farm off the coast of Germany, a $1.3 billion project; the
first and second phase of the 272MW Seigneurie de Beaupre wind
farm in Canada, a $756 million project; and the 92.5MW Hanas
Ningxia Yanchi Gaoshawo solar thermal plant in China, a $354
million project.
A closely related category of investment, the finance of
distributed renewable power technology, particularly rooftop
photovoltaic applications, also saw a record level of
investment with $73.8 billion invested in 2011, a 22% increase
over 2010.
Investments by the public markets fell by 16% in 2011 with
$11.9 billion invested. Notable public offerings included
Sinovel Wind Group, China's largest developer of wind
turbines, which raised $1.4 billion on the Shanghai Stock
Exchange; Huaneng Renewable Energy, a subsidiary of China's
state-owned Huaneng Group, which raised $800 million on the
Hong Kong Stock Exchange; Gevo, a venture-backed producer of
biobutanol from starch-based feedstock, which raised $107
million on the NASDAQ; and Solazyme, a venture-backed
developer of algae-based renewable oils and green byproducts,
which raised $227 million on the NASDAQ.
It should be noted, however, that while investments in the
public markets did fall relative to 2010 levels, when the
right opportunities presented themselves, the public markets
show a strong willingness to invest in clean technologies. In
fact, during the first two quarters of 2011, the public
markets invested $7 billion in clean technology companies, a
53% increase over the same period in 2010.
Venture capital and private equity investments in the clean
energy economy reached $8.9 billion in 2011, a 4% increase
over 2010. Notable deals in this category included the $112
million Series B round for U.S. electric vehicle company
Fisker Holdings; a $143 million expansion capital round for
U.S. biomass and waste-to-energy specialist Plasma Energy; and
a $445 million round for agri.capital, the German Biogas
specialist.
Corporate merger and acquisition (M&A) activity in the clean
AB 2409
Page 8
energy economy took an increasingly prominent role in 2011,
with M&A activity reaching a staggering $41.2 billion, a 153%
increase over 2010, according to an analysis by the Cleantech
Group. This was the highest level of corporate M&A in the
sector since 2008, indicating a strong appetite for clean
technologies acquisitions by corporate entities. Notable
deals in the category included Toshiba's $2.3 billion
acquisition of Switzerland's Landis+Gyr, a leading developer
of advanced electricity metering solutions, and Dupont's $6.3
billion acquisition of Denmark's Danisco, a leading industrial
biotechnology company.
4)AB 2409 and the Clean Technology Financing Landscape :
California leads the nation in securing venture capital
funding. In 2011, the state secured $14.5 billion or nearly
five times the amount secured by the number two ranked state,
Massachusetts, at $3 billion. Moreover, California leads the
nation in securing cleantech targeted venture capital
financing. In 2011, the state secured $4.9 billion in
cleantech targeted financing, again over five times the amount
secured by the number two ranked state for cleantech targeted
financing, Massachusetts, at $460 million.
5)Author's amendments : Staff understands that the author will be
taking amendments to authorize the CEC to establish an
investment advisory group consisting of private and public
investors, as well as clarify and make other conforming
changes to the bill.
6)Related legislation: Below is a list of bills related to this
measure from the current and prior sessions:
a) AB 758 (Skinner) Energy: energy audit: This bill
directed that directed 1) the California Energy Commission
(CEC) to develop a comprehensive program to achieve greater
energy savings in the state's existing residential and
nonresidential building stock, and 2) the CPUC to
investigate the ability of electric and gas utilities to
provide energy efficiency financing options to their
customers to implement the program to be developed by the
CEC. Status: The bill was signed by the Governor (Chapter
470, Statutes of 2009)
b) AB 2678 (Nunez) Energy: energy audit: This bill required
the CEC to establish an ongoing proceeding to develop
AB 2409
Page 9
requirements for time-of-sale energy-efficiency audits for
residential and commercial buildings. Due to the complex
nature of imposing an additional significant requirement on
realtors and lending institutions at the time of sale of
residential and commercial buildings, this bill was amended
and struck the required time-of-sale audits. Status: AB
2678 was held in Senate Appropriations Committee 2008
c) AB 14X1 (Skinner) Energy: energy upgrade financing:
This bill authorizes the California Alternative Energy and
Advanced Transportation Financing Authority to provide
financial support to lenders to facilitate projects for
energy and water conservation and renewable energy. The
fund source is $50 million originally appropriated in SB 77
(Pavley), Chapter 15, Statutes of 2010. Status: The bill
was signed by the Governor (Chapter 9, Statutes of 2011-12
).
1)Double Referral : The Assembly Rules Committee voted to refer
this measure to JEDE and the Assembly Committee on Natural
Resources. Should the measure be approved at the April 17,
2012 hearing, the bill will be referred to the second policy
committee for consideration.
REGISTERED SUPPORT / OPPOSITION :
Support
None Received
Opposition
None Received
Analysis Prepared by : Oracio Gonzalez / J., E.D. & E. / (916)
319-2090